Dear HARDI members: There is always uncertainty. With the Data Driven Newsletter and HARDInomics we try to reduce your uncertainty by illuminating the road ahead, like in this edition and our encouraging interpretation of the latest shipment report. The outlook for end market demand improving is less clear. Below you will find some tools for evaluating and navigating the uncertain road ahead. Thank you for reading our DDN. − Brian
Distributor's Key to Success
Remember that time you were driving at dusk and then realized, “my headlights aren’t on!” Wasn’t it amazing how much more you could see, and how much more confident you were, once you could really see the road ahead? That is what it is like when you have the results of our Annual Benchmarking Survey [ABS]. It is an indispensable tool that lets you see the road ahead so you can get to where you want to go. Assistance with visibility has been necessary recently.
Source: HARDI Annual Benchmarking Survey
The gross profit margin is the most important variable for a distributor. This chart shows the historic gross profit margin of HARDI distributors from the Great Expansion to the Covid Recession and challenges that followed. Each vertical line stretches from the upper to the lower quartile of participants that year, and the dot is the median. This view is available to all ABS participants and allows them to see that the elevated levels from 2021 to 2023 were not normal. The latest results indicate we are drifting back to normal. That transition creates its own navigational challenges.
Source: HARDI Annual Benchmarking Survey
The Personnel Productivity Ratio [PPR] is a favorite of HARDI distributors. It is total personnel expenses divided by gross profit. After Cost of Goods, Personnel expenses are the largest expense item for distributors. You see that with the left side of the chart when it consumed 55% to 57% of gross profit. Personnel expenses were less of a challenge when the gross profit margin popped to unsustainable levels. Insight into the PPR normalization process, and the performance related to each of the personnel expense items, is the confidence-boosting visibility available to ABS participants. Your results, with the historical data, are available through a wonderful website that CoMetrics has been refining while providing benchmarking services for more than 20 years. The site is easy to navigate, and I am available to show you how if that would be helpful. There are two additional features HARDI has developed for you to leverage this valuable insight.
Benchmarking is about looking forward. To assist with that objective, we have developed a way to use your benchmarking results to help you achieve your operating goals. ABS participants can easily export their results from the CoMetrics web page, then copy-paste them into our innovative workbook, Objectives & Drivers (O&D). O&D allows you to see where your operating objectives stretch the benchmarks. Do you want to have 15% sales growth? What inventory level, based on your turnover goal, is necessary for 15% sales growth? Where will you need additional staffing if your sales were 15% higher? What impact will these changes have on your cash conversion cycle? Objectives & Drivers provides you with early insight into what you will need to get to where you want to be. This demo shows you how Objectives & Drivers is a new way to benchmark. Even when we have clear visibility of the road ahead, sometimes we need to ask for directions. That is why some ABS participants have share-and-compare meetings.
Many HARDI distributors are part of small, trusted networks, typically through their buying groups or supplier groups, where they discuss operating results and trends. Part of that discussion includes strategies for improving operating efficiency. We have designed a workbook that allows a group to easily compare their ABS results. It is arranged by topic to facilitate productive discussions for your group. Please contact me if you would like to deploy this for your next Share-and-Compare meeting.
The fiscal 2025 survey is now available. Please click here to request a survey, ask a question or schedule a detailed demonstration of any of these three amazing resources that are available to you. The survey deadline is May 15, and we intend to share the results with participants on May 20. We hope all HARDI distributors will use this member benefit this year.
Shipments Have Finally Bottomed Out
Source: ahrinet.org
Do you think shipments are done sinking or is that just wishful thinking? This chart illustrates the recent annual shipment growth rate for each product line. Demand was declining during 2023 and the first half of 2024 as lead times recovered after the supply chain crumbled. That trend was interrupted by the spike higher and preparation for the A2L equipment transition. The latest turn south by the annual growth rate is due to the inflated prior year activity level and the time needed to work off that extraordinary transition-related inventory. What’s next? It looks like the heavy, dark line of all shipments has stopped falling and there are reasons that support that conclusion.
Sales of ducted air conditioners and air source heat pumps are the primary contributors to the decline in unitary volumes, decreasing by 18% and 14%, respectively over the past 12 months. Strong equipment sales through the end of 2024 on both the sell-in and sell-through sides made for extremely challenging year over year comparisons. Distributor unit sales growth remained positive through the first half of 2025, further strengthening the prior-year base and weighing on 2026 comparisons. The pace of decline in the three-month growth rate has slowed over the past two months, suggesting that conditions are beginning to stabilize.
Source: HARDI; ahrinet.org
The dark line in this chart is the same annual growth rate of furnace, air conditioners, and heat pump shipments that is reported by AHRI in their monthly report. The first step toward understanding shipment demand is measuring the amount of inventory distributors have. One way to do that is by looking at the orange line in this chart which shows the sales-to-inventory ratio from HARDI’s monthly distributor sales survey Trends Report. Since the level of inventory in the channel will influence the level of demand for equipment, we moved the orange line forward until we found the best fit with the annual growth rate of shipments. That relationship was ten months, and indicates the annual growth rate of shipments, the dark line, is about to turn higher to follow the orange sales-to-inventory ratio line. That is confirmed by the implied annual rate of shipments.
The implied annual rate is the units shipped during a month divided by the normal annual share of shipments for that month. Since shipments can be volatile, we prefer to look at several months for confirmation of the implied annual rate. Another way is to perform the calculation on the sum of shipments during the past three or four months. Based on the four months of shipments through February of 2026, the implied annual rate for air conditioners exceeds the last twelve months of shipments by 8%. The implied annual rate of heat pumps is currently flat/up from the past twelve months, while the implied furnace rate indicates shipments will decline by 7%. The sum of those three implied annual rates is consistent with the dark shipment annual growth rate line turning to follow the orange line. That relates to the first step of demand. A turn for the second step of demand, the end market, is less certain.
The Second Step — End Market Demand
Source: nClimDiv-Monthly
Improving end market demand is the most effective way to accelerate the recovery of the sales-to-inventory ratio and then the pace of equipment shipments. All of us know that demand will move in the direction of the temperature outdoors. The rich colors in this map illustrate the unusually warm temps across our country during March. Heating degree days during March were below normal in 47 of our 50 states [we do not have that insight on Alaska or Hawaii]. NOAA reports that March 2026 was the warmest on record in ten of our western states. How much warmer? The average temp during March was warmer than the normal average temp for April in ten of these states. The average temp in California during March was warmer than a normal May! While the warmer temps provided an early boost to seasonal demand, other demand drivers are not yet pointing to a sustained recovery for us.
Source: HARDI; National Association of Realtors
The orange line in this chart shows the annual sales growth of HARDI distributors, which has been in the low single digits during the past thirty months. One reason for that extended period of subdued demand is existing home sales which is the dark line in this chart and corresponds to the dark Y-axis on the right. After a thirty month rate tightening cycle, existing home sales have been near four million for more than two years. The last time home sales were near 4 million was for only four months during the Great Recession. This extended period of depressed housing activity is one reason that we have been through our recession. We are at the trough level of demand. The only question for us is when will demand improve, and recent events have probably postponed that recovery.
Source: Board of Governors of the Federal Reserve System; Freddie Mac
The most important driver of existing home sales is mortgage interest rates. The most important driver of mortgage interest rates is the 10-year bond yield. The most important driver of the 10-year bond yield is inflation and inflation expectations. The orange line in this chart shows the interest rate for a 30-year mortgage. After dipping below 6% recently, the rate for a 30-year mortgage is back to 6.4% after the 10-year bond yield was pushed higher by inflation expectations. Your demand will improve when the 10-year bond yield can stay below 4%. Just Google “10-year government bond yield” for early insight into whether there is recovery on the horizon for us. There is another variable from a state specific perspective that may be worth watching.
“Resilient” was the most popular way to describe our economy while the Fed was increasing rates to tame inflation. By the time they began to cut rates, the description we preferred was “fragile.” With the commodity costs spiking and trying to decide if the rapid roll-out of AI is a threat or opportunity, “uncertainty” may be the most appropriate word for today. The performance of our fragile economy varied by state before the additional demand and cost uncertainty. One convenient tool for insight into the economic health in your state, and maybe to alleviate some of your uncertainty, is the Unemployment Claims Monitor webpage maintained by the amazing Federal Reserve Bank of Atlanta. At the site you can select your state from a dropdown menu to see if weekly initial unemployment claims are spiking higher and the impact on continuing unemployment claims. The site can be a little tricky to navigate, so here is a brief orientation demo for insight into the trends at your state.
Warmer weather will melt the elevated distributor inventories toward normal levels. We already see signs that the level of shipment demand has bottomed out. The annual sales growth by HARDI distributors has been at low single-digit levels for three years. Our hopes for improving demand this year as inflation subsided has been dimmed by the uncertainty associated with current events. One thing that is certain is that various types of challenges will persist, and distributors will need to continually improve their operating efficiency. That is why we encourage all HARDI distributors to use our Annual Benchmarking Survey to help you survive and thrive through the uncertainty. Please let me know if you need a survey or would like a demo.
The Tariff Rates They Are a-Changin'
By Tim Fisher
On April 2nd – exactly one year after the sweeping Liberation Day tariff announcements – President Trump announced additional changes to tariff rates that will affect HVACR products. However, unlike the reciprocal tariffs that were announced a year ago, the recent announcements are narrower in scope and unlikely to be invalidated by court rulings.
The recent tariff changes are best viewed as an update to the metal derivative tariffs that have been in place since August. Previously, products that were defined as derivatives of steel, aluminum, or copper were subject to a 50% tariff on the declared value of the product’s metal content (in kilograms). The updated tariff schedule sets tariff rates based on the weight of the metal content relative to the total product weight. Below is a brief summary of those changes:
Products made almost entirely of steel, aluminum, or copper will be subject to a 50% tariff on the full value of the imported product.
Products defined as steel, aluminum, or copper derivative products will pay a flat 25% on their full value, rather than a 50% tariff on the value of the product’s metal content.
Products made abroad but entirely with American steel, aluminum, and copper will be subject to a 10% tariff rather than the 25% tariff.
Products made of 15% or less steel, aluminum, or copper will no longer be subject to metal tariffs.
Source: U.S. International Trade Commission, HARDI estimates
Note: These estimates should not be interpreted as the actual rate being paid on imported products, but rather the average across all HVACR product types. All HVACR reflects the average tariff rate across all imported HVACR products; Sec. 232 refers to the average rate across all HVACR products subject to metal derivatives tariffs, and HVACR ex 232 refers to the rate on products not subject to Sec. 232 metal derivatives tariffs.
Products defined as being metal derivatives cover a wide range of products sold by HARDI members, including air conditioners, heat pumps, compressors, boilers, water heaters, and various additional parts and component categories. Consequently, the metal derivatives tariffs have had a pronounced impact on the cost of imported HVACR products. In the 12 months preceding August 2025, the average difference in tariff rates between products that would eventually be subject to the metal derivatives tariffs and all other HVACR products was 0%. In the months since August 2025, the average difference has been 8 percentage points, nearly double what the import costs for the industry would otherwise have been.
Exactly how the recent changes to the tariff schedule will affect HARDI members is an open question, and one that can’t be answered without better insight into the value of the metal content in imported derivative products (contact me if you want to share this information!). However, on balance, these changes appear more likely to raise costs than lower them for HARDI members. Early member feedback suggests that few, if any, imported products are manufactured with metals that are more than 95% American-made, suggesting that a large percentage of HVACR products will see higher import costs in the months ahead.
DID YOU SEE THAT?
NASA Pics
One of our favorite people shared this site with us that consolidates some of the best pictures from the Artemis II adventure. If he thought it was cool, then we know you will too.
This is Reality TV
Springtime means falcon cams and there are many to choose from. This one from the National Aviary should provide a great view of the four chicks after they hatch and there is descriptive text updated periodically. This one from Indiana Michigan Power has been around for a while and could be worth monitoring. This pair from Richmond is also watching four eggs estimated to hatch around April 25th to 27th.
Slow Motion Train Wreck Update
During the past few years this section has included articles about the Slow Motion Train Wreck of Zombie Office Buildings and the risk that Extend and Pretend was undermining the quality of bank loan portfolios. The latest in this fascinating story of capitalism is A Fire Sale Has U.S. Office Buildings Going for 90% Off. Maybe we can get through the train wreck without a loud boom and financial instability. Still to be decided is what this means for our major cities, where a building that was bought for $68 million is sold $4 million a decade later.
